To consider the attached report from the Authority’s External Auditors – Grant Thornton, concerning the Audit Finding 2019-20. 

Michael Green, representing the Authority’s External Auditor – Grant Thornton, provided Members with an overview of their Audit Finding Report for 2019-20.

He placed his thanks on record to the Director of Finance and his team for their patience and assistance, through what has been a long and difficult audit process, against a backdrop of Covid-19 and new ways of working remotely.

Some of the most important aspects of the findings and work undertaken, were highlighted to Members.

Members were advised that the audit work is essentially complete; and that Grant Thornton anticipate issuing an unqualified opinion.

Members were informed that the report now includes an “Emphasis of Matter” paragraph, which draws attention to the material uncertainty relating to the valuation of Authority land and buildings, that the valuer has included within their report, and which is also disclosed within the Financial Statements. They were advised that this paragraph also refers to similar material uncertainty, reflective of the valuation of property assets in the accounts, in relation to the Local Government Pension Fund for Merseyside, a share of which will be attributable to the Authority and therefore disclosed within the Financial Statements and the Audit opinion.

It was emphasised to Members that the “Emphasis of Matter”, is not a qualification of audit opinion, it simply draws attention to what audit consider to be a significant disclosure, to help a reader to understand the financial statement. They were informed that the Authority is not unique in having that “Emphasis of Matter” paragraph including in the report this year, with it featuring in all Local Authority Bodies reports, due to the impact that Covid-19 has had on the valuation of property assets.

It was confirmed to Members that the Financial Statements had been prepared to a good standard, with only two mis-statements being identified. Members were informed that one of those, was beyond the control of the Authority, due to a post-balance sheet event, relating to the McCloud legal case.

They were advised that the impact of the adjustments identified, is a £5.9m adjustment to the comprehensive income and expenditure statements. However, it was emphasised that this does not impact on the financial performance of the Authority for the year, or on the usable reserves of the Authority.

Members attention was drawn to the work delivered around the Authority’s Value for Money arrangements. They were advised that as previously reported in the Audit Plan, a significant risk has been identified around financial sustainability. However, based on the procedures in response to that risk, the Auditors have concluded that the Authority has appropriate arrangements in place to address that risk; and the Authority has responded very well in relation to the impact of Covid-19 on finances.

Therefore, the Auditors do not have an issues or concerns; and will be issuing an unqualified opinion on the Authority’s Value for Money arrangements.

Members were informed that Grant Thornton have not had to exercise any of their statutory powers or duties during the year; and will be certifying completion of the audit, alongside issuing the audit opinion.

It was also confirmed to Members that the audit work is completed to a materiality of £1.794m; and that any errors above £89k, if identified, would be reported within this report.

Members were provided with an update on the outstanding items highlighted within the report. They were advised that assurance had now been received from the Auditor of the Merseyside Pension Fund, which has been reviewed, with no matters identified which need to be brought to Members attention.

In terms of the three other outstanding items, Members were advised that they are performed immediately in advance of giving the audit opinion; and it was confirmed that the work of the Auditors is essentially complete.

Members attention was then drawn to the significant risks identified earlier in the audit plan; and the procedures and findings from the work undertaken.

Members were informed that the main findings relate to the property, plant and equipment valuation, the material uncertainty previously mentioned; and one adjustment in relation to the counting treatment applied on the valuation of assets, which resulted in a £1.3m adjustment, but no impact on usable reserves or the financial performance of the Authority.

The detailed work undertaken to consider the Pension Fund Liability, was then highlighted to Members. They were advised that the post-balance sheet event and legal case, previously mentioned, resulted in a significant adjustment of the accounts last year. Members were informed that in July 2020, Treasury issued a consultation on what a proposed remedy to the legal judgement would be. They were informed that the Pension Fund Actuary, subsequently advised management that their liability would be impacted as a result of that judgement; and management therefore requested an updated valuation. Members were advised that that identified an overstatement in the liability of £4.5m; and as it was such a material figure, based on the best available data, management adjusted the accounts to reduce the Pension Fund liability.

Members were also advised that the technical experts within Grant Thornton have advised that this should be dealt with as a non-adjusting post-balance sheet event, primarily on the basis that it is in consultation at present, with no firm indication of what the actual remedy would be. It was confirmed to Members that this matter had been discussed with management; and the Auditors are very happy with the decision made and the rationale for making that adjustment. As such, it was confirmed that it is not being identified as an error; and the Auditors concur with the financial and accounting treatment applied.

It was confirmed to Members that Grant Thornton remain independent; and that they have not provided any additional services to the Authority.

With regards to the Action Plan based on the finding, Members were informed that only one action has been identified in respect of accounting treatment applied to fixed asset re-valuations. Members were informed that management has accepted the response; and that this issue will be followed up as part of next years’ audit.

Members Resolved that:

The content of the report, be noted.